Accounting for Managers... Applied

In Melbourne Business School, one of the core MBA classes is Accounting for Managers which covers many topics in accounting that are important for managers. One cornerstone of accounting is when to treat a cost as an asset (capitalized) and when to treat it as an expense. A cost can be capitalized when:

• it is likely that future economic benefits will arise
• that amount can be reasonably estimated

Apparently George W. Bush, himself a Harvard Business School graduate, does not understand this distinction, or doesn't apply conservatism -- another key accounting principle -- when dealing with the American people. I immediately recognized this when reading this article from the New York Times:

But one reason that the agency’s deficit estimate was higher than those of outside analysts was that it added in hundreds of billions of dollars in spending tied to the government’s existing bailout programs, which the Bush administration has thus fare treated as “investments” it would recoup rather than “spending” or “costs” that are down the drain.

In other words, the bailout cannot be treated as an asset; it doesn't fit the above criteria and therefore must be expensed.

That worries me.